The most awaited Budget
THE ECONOMIC SURVEY 2020-21 released on Friday set the tone for the Union Budget 2021-22, to be presented on Monday. The Survey batted for a bold fiscal expansion to make the economic recovery more broad-based. Economists are already factoring in a fiscal deficit of about 7.5 per cent of gross domestic product (GDP) in 2020-21, based on its level till December 2020, and an increase in government spending. If the government keeps the fiscal deficit at 6 per cent of GDP, it would be able to borrow close to
~13 trillion in 2021-22 (chart 1), which could help stimulate the economy.
Raising capital expenditure could be the best way to spend the borrowed money, as it has a higher multiplier. Capex as a share of total expenditure declined in recent years, shows chart 2. The government’s fiscal response to the pandemic was mostly focused on the rural areas and agriculture. These two departments spent more money in nine months than the entire year FY20 (chart 3).
Exports faltered in 2020, only to rise in the most recent months. Regaining export links, and boosting exports of electronics, engineering goods and textile could well be on the agenda of the Budget. These areas contributed the most to the fall in exports this year, chart 4 reveals.
The most affected sector in the pandemic remains the services sector, apart from banking and financial services. It accounts for a lot of informal employment in the country, and raising services growth will help achieve the ambitious GDP growth rate of 11 per cent in FY22. Gross value added in the sector (including construction) grew at 7.4 per cent in the last decade and needs to grow from the current phase of contraction (chart 5).
There are several other areas that may find a place in the Budget. But any reform or ambitious estimate will become difficult to achieve if Covid-19 is not kept at bay. Vaccination has started, but the pace needs to increase. With the availability of public health workers and fiscal support, it should certainly be possible (chart 6).